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In the 1980s, attorney Gary Reback was working at Sun Microsystems, then a young technology startup. A pack of IBM employees in blue suits showed up at Sun headquarters seeking royalties for 7 patents that IBM claimed Sun had infringed. The Sun employees, having examined the patents, patiently explained that six of the seven patents were likely invalid, and Sun clearly hadn't infringed the seventh. Reback explains what happened next in this classic Forbes article:

An awkward silence ensued. The blue suits did not even confer among themselves. They just sat there, stonelike. Finally, the chief suit responded. "OK," he said, "maybe you don't infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?" After a modest bit of negotiation, Sun cut IBM a check, and the blue suits went to the next company on their hit list.

This story sheds light on the recent string of stories about Microsoft demanding royalty payments from various companies that produce smart phones built on Google's Android operating system. Intuitively, this doesn't make much sense. Most people would say that Google has been more innovative than Microsoft in recent years—especially in the mobile phone market—so why is Microsoft the one collecting royalties?

The reason is that Microsoft has more patents than Google. A lot more. The patent office has awarded Google about 700 patents in its 13-year lifetime. Microsoft has received 700 patents in the last four months. Microsoft's total portfolio is around 18,000 patents, and most of those were granted within the last decade.

Even if you think Microsoft is more innovative than Google, the engineers in Redmond obviously haven't been 25 times as innovative as those in Mountain View. So why the huge discrepancy?

Getting software patents takes a lot of work, but it's not primarily engineering effort. The complexity of software and low standards for patent eligibility mean that software engineers produce potentially patentable ideas all the time. But most engineers don't think of these relatively trivial ideas as "inventions" worthy of a patent. What's needed to get tens of thousands of patents is a re-education campaign to train engineers to write down every trivial idea that pops into their heads, and a large and disciplined legal bureaucracy to turn all those ideas into patent applications.

Creating such a bureaucracy has a high opportunity cost for small, rapidly growing companies. Most obviously, it requires spending scarce capital on patent lawyers. But it also means pulling engineers away from doing useful work to help lawyers translate their "inventions" into legal jargon. And that, in turn requires a shift in corporate culture. Startups are innovative precisely because they avoid getting bogged down in paperwork. Convincing engineers to pay more attention to patent applications necessarily means that they spend less time doing useful work, and that can be fatal to a young startup.

The opportunity costs to getting patents is much lower for mature software companies like Microsoft or IBM. They tend to have more money and engineers than they know what to do with. And their software development processes are already slow and bureaucratic. So it's much easier to add a "fill out patent applications" step to the official software development process, and the negative effect on engineers' productivity is much smaller.

These differences are exacerbated by the long time lag between when applications are filed and patents are granted. Most of the 52 patents Microsoft received this week were filed between 2006 and 2008. One was filed as early as 2003. In 2006, Microsoft had been steadily cranking out patent applications for years, while Google was only just becoming large and profitable enough justify devoting serious resources to patent filings. So even if Google cranks up its patenting machine to Microsoft's level this year, it won't start seeing the fruits of that effort until around 2015.

You might think Google could deal with this by just not infringing Microsoft's patents, but that's not how software patents work. Android has roughly 10 million lines of code. Auditing 10 million lines of code for compliance with 18,000 patents is an impossible task—especially because the meaning of a patent's claims are often not clear until after they have been litigated. Most Silicon Valley companies don't even try to avoid infringing patents. They just ignore them and hope they'll be able to afford good lawyers when the inevitable lawsuits arrive.

So Android, like every large software product on the planet, infringes numerous Microsoft patents. And Microsoft is taking full advantage. They're visiting Android licensees and giving the same sales pitch Reback remembers from a quarter century ago. "Do you really want us to go back to Redmond and find patents you infringe? Or do you want to make this easy and just pay us?" Once again, many of the targets are writing checks to make the problem go away.

The result is a transfer of wealth from young, growing, innovative companies like Google to mature, bureaucratic companies like Microsoft and IBM—precisely the opposite of the effect the patent system is supposed to have.